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Post by Capital on Jan 7, 2023 14:31:06 GMT
After watching the House elect a Speaker, I now have concerns holding US Treasuries and Treasury/Government backed investments.
From all accounts it appears the debt ceiling will need to be raised before or during Q3-2023 of we will face a default.
I have serious concerns that the current makeup of the US House can do what is necessary to avoid a default.
Currently I have Treasuries maturing thru March 2023 and will not be buying Treasuries for the next 2 years at least.
Next, I now have concerns with holding funds in Treasury or Government Money Market Funds.
I am looking for alternatives as to where I can place these funds. Looking for options - do you have any.
I probably will not start moving liquid assets until April-May 2023; however, I am working on the plan to do so.
Let's discuss the options.
My statements in this post are financial/portfolio management in nature and not political. I'm not looking to start a political discussion here. TIA
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Post by FD1000 on Jan 7, 2023 14:51:02 GMT
I have no idea what would happen, nobody does. I never invested based on politics, why should I start now? Bonds are on an uptrend for 2 months, looks pretty simple to me after the one of the worse year performance for decades + close to the end of raising rates by the Fed. I use 5 generic categories HYD=HY Muni....BKLN=bank loan....HYG=HY...PIMIX=Multi...DODIX=higher-rated bonds. The chart below shows that all bond categories are in a great uptrend. Here is a link for the ( chart). See it also below. KISS Attachments:
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Post by Capital on Jan 7, 2023 14:55:23 GMT
FD1000 , thanks for the post. I have no idea what will happen either; however, I currently "feel" there is an 90%-95% chance of a US default later this year.
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Post by fred495 on Jan 7, 2023 15:09:36 GMT
After watching the House elect a Speaker, I now have concerns holding US Treasuries and Treasury/Government backed investments. From all accounts it appears the debt ceiling will need to be raised before or during Q3-2023 of we will face a default. I have serious concerns that the current makeup of the US House can do what is necessary to avoid a default. [...] I now have concerns with holding funds in Treasury or Government Money Market Funds. I am looking for alternatives as to where I can place these funds. Looking for options - do you have any. [...] Let's discuss the options. [...]
Thanks, Capital, well said.
I have similar concerns.
Would, for example, FDIC insured CDs be a place to hide out from a US government default?
Yes, let's discuss possible options, especially in the area of money market funds.
Fred
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Post by bizman on Jan 7, 2023 15:43:10 GMT
When morons juggle hand grenades, what could go wrong? Sorry, but I couldn't resist. I'm right of center, so hopefully this "self-critique" won't qualify as, at least, conventionally political.
If there is a default, especially one that is more than technical and lasts a few hours, all hell could break loose. Which is why one hopes even the kamikazes won't actually pull the trigger on this economic bomb.
Surely there will be distortions in the Treasury market as we get closer to a potential default. So perhaps a bank account might avoid some of the short term drama. But the underpinning of the financial system is the Treasury market. If it really would go bad, theoretically, 2008-2009 memories could be revived.
However, in terms of the FDIC guarantee, it is less of a guarantee than the full faith and credit of the US Treasury. If the commitment to Treasuries isn't honored, then no commitment from the government means anything IMO.
Maybe you could move into foreign denominated short term debt or something. Other options might include gold (or crypto, no thanks!) or stocks of staples companies or something I would think. But those have their own potential downsides as well.
That's if you think the nuts will actually take the chance of causing an elective financial crisis. At least if they do this, they will never have power again and will go the way of the Whigs.
Longer term, I think a voluntary default would just add momentum to the idea that the US will lose the advantage of being the world's reserve currency, and probably means having an allocation to gold makes sense. Wondering out loud, would the best way to do that be the metal or GDX? I'm thinking GDX?
Other than that, you could get a counter-intuitive flight to quality in the bond market like I believe we had in 2011 (?) when they were last playing with this stack of dynamite. Perhaps avoiding the short dated Treasuries with maturities right around the expected kerfuffle would be smart. Either that or fill up your home safe with stacks of currency?
I'm definitely open to other suggestions.
Edited to add: Perhaps another possibility would be temporary QE by the Fed to soak up the troubled securities. Unless not raising the debt limit might foreclose that possibility?
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Post by Capital on Jan 7, 2023 15:47:11 GMT
fred495 , I have identified FDIC vehicles as my MMMF replacement vehicle for my taxable accounts. After reviewing my exposures this morning I have less than 2% of my taxable accounts in MMMFs now. I'm not much worried with that exposure. I do have more significant MMMF balances in my IRAs and need to think on that. CDs are an option there.
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Post by Capital on Jan 7, 2023 15:56:52 GMT
bizman , FDIC insured funds should be more stable in a default. There is a fund funded by bank insurance premiums in front of Uncle Sam. Also the FDIC has a history of finding solutions for failed banks. That is really not my concern here. A US default would apply huge market risk to an asset that currently is viewed to only have interest rate risk. I don't want market/default risk in what I consider cash.
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Post by bizman on Jan 7, 2023 16:04:31 GMT
bizman , FDIC insured funds should be more stable in a default. There is a fund funded by bank insurance premiums in front of Uncle Sam. Also the FDIC has a history of finding solutions for failed banks. That is really not my concern here. A US default would apply huge market risk to an asset that currently is viewed to only have interest rate risk. I don't want market/default risk in what I consider cash. That makes sense, if it is just a temporary kerfuffle that gets walked back before the point of no return. If it is a longer lasting problem, they might as well set off a nuke in Times Square. Hopefully they aren't that careless with all of our livelihoods. |
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Post by uncleharley on Jan 7, 2023 16:11:51 GMT
I am trying to be a reformed trader in 2023 however this situation is making my voluntary reform difficult. If I revert back to my trading ways, I will follow the trend that looks the most promising. Right now the clearest trend that I can find in our plethora of opportunities is the declining trend in the value of the USD. Precious metals and their miners have a strong history of moving in the opposite direction of the USD. They do not move simultaneously, however the precious metals will react negatively to an established trend in the USD. The chart below is a weekly chart of the value of the USD as measured against a basket of major currencies. I leave it to whoever looks at it to decide if the USD has established a new trend or not. I know, the possible new trend began before the most recent political maneuvers, but much of this could have been anticipated by a market that has a history of discounting the future. stockcharts.com/h-sc/ui?s=$USD&p=W&b=3&g=0&id=p06749527248&a=412594802&listNum=86 |
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Post by Deleted on Jan 7, 2023 17:51:48 GMT
uncleharley , You seem to have a knack for trading precious metals. I have just bumbled happily along with my 3 gold miners which are doing very well. And, I have seen them do not so well. Huge fluctuations. Seems an area ripe for a gifted trader to profit. If I had that gift, I'd be trading at least part of my portfolio. I am sure you have other considerations, and I am not trying to persuade you, but! Capital, I have heard similar concerns about Congress not being able to effectively navigate the debt ceiling. I agree with FD here - investing based on politics is probably more of a worry than a strategy. So many variables and the personal stake so high.
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Post by marpro on Jan 7, 2023 23:49:23 GMT
FD1000 , thanks for the post. I have no idea what will happen either; however, I currently "feel" there is an 90%-95% chance of a US default later this year. No. It will not happen. Do you think that US will become the laughingstock of the world? |
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Post by Chahta on Jan 8, 2023 2:04:28 GMT
Regardless of politics, I am leaving Treasuries behind for 2023. I think it's time for bonds again and have been buying for several months (actually a little too early). I have 1 more Treasury to mature then it's adios. If I need something to hold cash it will be MM.
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Post by roi2020 on Jan 8, 2023 3:25:08 GMT
Certain members of the House are obstructionists/opportunists.
They are not there to help their constituents or to make this a better country.
I presume this crew will take advantage of debt ceiling negotiations to steal the spotlight, make false claims, and offer untenable solutions.
A technical default (US government is late paying some of its debt) may be a potential outcome.
A true default will not occur as all creditors will be paid in full.
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Post by FD1000 on Jan 8, 2023 4:54:31 GMT
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Post by racqueteer on Jan 8, 2023 12:32:09 GMT
With another simple answer: No air, no fly!  |
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Post by Capital on Jan 8, 2023 12:45:44 GMT
Under the negotiated proposed rules, as I understand them, it only takes one of the 20 to call a vote to oust the Speaker. I have no doubt in my mind that certain of the 20 have any issues in doing so to disrupt the House proceedings. Unless the Democrats side with the majority of Republicans the current Speaker does not have the votes to stay in office. Then instead of the work of the House we are back to electing a Speaker. The next time could take weeks or months to accomplish depending upon the mindset of the 20. All the while the debt goes unpaid. Personally I have no doubt in my mind that the small faction of 20 would do this. That is what I want to protect myself from.
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Post by uncleharley on Jan 8, 2023 13:06:02 GMT
Under the negotiated proposed rules, as I understand them, it only takes one of the 20 to call a vote to oust the Speaker. I have no doubt in my mind that certain of the 20 have any issues in doing so to disrupt the House proceedings. Unless the Democrats side with the majority of Republicans the current Speaker does not have the votes to stay in office. Then instead of the work of the House we are back to electing a Speaker. The next time could take weeks or months to accomplish depending upon the mindset of the 20. All the while the debt goes unpaid. Personally I have no doubt in my mind that the small faction of 20 would do this. That is what I want to protect myself from. Me too! Given the new bearish trend for the USD, I am preparing to diversify my port away from income oriented CEFs and back into precious metals-oriented ETF's. I am not going to move a large part of my port, but a 10% position should give me adequate protection in case the juveniles decide to throw a tantrum. |
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Post by yogibearbull on Jan 8, 2023 13:18:24 GMT
Default is when bills are not paid when due. Why it occurs doesn't matter - the lack of ability or will or willingness to pay. Technically, there is also a grace period of a few days or weeks, but in case of debt-ceiling crisis, the max damage may be after the initial trigger. Also, the time for theatrics is when spending bills are approved, not when payments are due. History of 2011 should be reviewed. Markets started to fall in July 2011 after months of impasse on debt-ceiling but there was a final drop-dead date in early/mid-August 2011. The House finally passed the bill on 8/1/11, the Senate on 8/2/11, but lot of damage to the markets (stocks, not bonds) had already occurred. Then, after the immediate crisis had passed over, the dimwitted S&P/McGraw-Hill downgraded the US sovereign debt on 8/5/11, creating another crisis. As the history shows, no other rating agency dared to follow the S&P, and McGraw Hill was severely punished (in the markets) by that fiasco - it doesn't exist in its then-form anymore. Wiki on 2011 Debt-CeilingChart for 2 months in 2011, 7/1/11-8/31/11.  |
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Post by Capital on Jan 8, 2023 13:37:11 GMT
Also, the time for theatrics is when spending bills are approved, not when payments are due. , thanks for your thoughtful post. It gives us more to consider. The above you posted is something I completely agree with. I would only add that the US is one of a few developed nations that has a debt ceiling. I have long thought we should rid ourselves of the self-made returning crisis. If Congress votes to spend money it should be a given that they have voted to increase the debt. On the other hand, if Congress votes to raise taxes, then they have voted to reduce the debt or slow the rate of its increase. There is no need to constantly create a self-made crisis that only does harm to us all. If you do not like the level of the debt vote to raise tases to reduce it. Take real action. |
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Post by Deleted on Jan 8, 2023 13:43:12 GMT
Under the negotiated proposed rules, as I understand them, it only takes one of the 20 to call a vote to oust the Speaker. I have no doubt in my mind that certain of the 20 have any issues in doing so to disrupt the House proceedings. Unless the Democrats side with the majority of Republicans the current Speaker does not have the votes to stay in office. Then instead of the work of the House we are back to electing a Speaker. The next time could take weeks or months to accomplish depending upon the mindset of the 20. All the while the debt goes unpaid. Personally I have no doubt in my mind that the small faction of 20 would do this. That is what I want to protect myself from. I don't see the the calling of a vote as a bad thing. |
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Post by Fearchar on Jan 8, 2023 13:51:08 GMT
My mothers owns a ton of SPGI that she inherited from my Grandfather at McGraw Hill.
Dimwitted or not, they have proven themselves as responsible and fully respectable.
It's one of the reason they have done so well since the last crisis.
If they downgrade US Debt, it's for good reason!
None the less, I appreciate the discussion, with the exception of the juvenile sarcasm.
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Post by Chahta on Jan 8, 2023 13:56:46 GMT
Under the negotiated proposed rules, as I understand them, it only takes one of the 20 to call a vote to oust the Speaker. I have no doubt in my mind that certain of the 20 have any issues in doing so to disrupt the House proceedings. Unless the Democrats side with the majority of Republicans the current Speaker does not have the votes to stay in office. Then instead of the work of the House we are back to electing a Speaker. The next time could take weeks or months to accomplish depending upon the mindset of the 20. All the while the debt goes unpaid. Personally I have no doubt in my mind that the small faction of 20 would do this. That is what I want to protect myself from. The entire point of keeping the speaker in limbo is to get a do-nothing majority to get things done. For too long it is "go along to get along". The die has been cast; 87,000 IRS agents wiil be defunded. |
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Post by gman57 on Jan 8, 2023 14:05:45 GMT
The die has been cast; 87,000 IRS agents wiil be defunded. A next step is to de-weaponize the FBI. Not quite how the government works... divided congress and D president....NOTHING will get done/change for the next few years. |
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Post by Chahta on Jan 8, 2023 14:06:20 GMT
Default is when bills are not paid when due. Why it occurs doesn't matter - the lack of ability or will or willingness to pay. Technically, there is also a grace period of a few days or weeks, but in case of debt-ceiling crisis, the max damage may be after the initial trigger. Also, the time for theatrics is when spending bills are approved, not when payments are due. History of 2011 should be reviewed. Markets started to fall in July 2011 after months of impasse on debt-ceiling but there was a final drop-dead date in early/mid-August 2011. The House finally passed the bill on 8/1/11, the Senate on 8/2/11, but lot of damage to the markets (stocks, not bonds) had already occurred. Then, after the immediate crisis had passed over, the dimwitted S&P/McGraw-Hill downgraded the US sovereign debt on 8/5/11, creating another crisis. As the history shows, no other rating agency dared to follow the S&P, and McGraw Hill was severely punished (in the markets) by that fiasco - it doesn't exist in its then-form anymore. Interesting....I went and looked at TNX for 8-5-11. It was declining at that time. One would think with a downgrade, interest rates would trend up. |
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Post by Chahta on Jan 8, 2023 14:11:14 GMT
The die has been cast; 87,000 IRS agents wiil be defunded. A next step is to de-weaponize the FBI. Not quite how the government works... divided congress and D president....NOTHING will get done/change for the next few years. Thus, "we will see". We will see different government actions not seen in a while. |
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Post by FD1000 on Jan 8, 2023 14:35:21 GMT
My main point is that we can have turmoil and crisis but if it will not last for months-years, the global financial system will collapse. If you can't trust MM in Vanguard, Fidelity and Schwab we have a bigger problem. A real crisis would lead to big stock+bond decline, and shutting down trade. We had already www.investopedia.com/articles/economics/09/money-market-reserve-fund-meltdown.aspThe most important, what should you do now? I don't see any good solution and the ones you think are good, may hurt you even more. But, if you insist on being afraid, maybe you should buy gold and fill your basement, or maybe you can build an underground stand alone bunker and get all the power from the sun + fill the bunker with food and guns. |
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Post by Capital on Jan 8, 2023 14:53:02 GMT
OK folks, I really don't care about all this political stuff. What I care about is a functional Legislature being able to pass legislation this year about the debt ceiling. That is something I do not feel comfortable about. In the current structure we have a Senate slimly controlled by the Democratic Party. From what I see we seem to have a House that is in actually operating in a three-party system with none of the three parties having a majority. There are 212 Democrats, 202 Republicans, the 20 and one vacant seat. The leadership of the House is vested in a very fragile coalition of the 202 Republicans and the 20. In order to get a Law passed you must have both houses of Congress to agree. That takes negotiation and I do not believe that all of the 20 will agree to negotiation because they do not want to raise the debt ceiling period - that's MHO. Even if you can get the House Republicans and Democrats to vote for a proposal any one of the 20 can stop action in the House by calling for a vote on the ousting the Speaker. We are doomed IMHO by this power given to the 20 because Congress will be unable to act due to a small minority (4.6% of the House) that have given us very little reason to trust that they have the best interest of the nation as a whole as a part of their agenda - again MHO. Over 95% of the Nation, Republicans and Democrats alike, have no voice because of 4.6%. If it were not for the 20 I would say we have a very good and divided Congress. Both Republicans and Democrats would have seats at the table to negotiate balanced legislation or none at all - IMHO not a bad thing. A balanced and divided Congress has always seemed to work best for me; however, what we have now is not a workable situation IMHO. I see default as imminent with a 90%-95% probability of occurrence.
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Post by win1177 on Jan 8, 2023 15:43:34 GMT
OK folks, I really don't care about all this political stuff. What I care about is a functional Legislature being able to pass legislation this year about the debt ceiling. That is something I do not feel comfortable about. In the current structure we have a Senate slimly controlled by the Democratic Party. From what I see we seem to have a House that is in actually operating in a three-party system with none of the three parties having a majority. There are 212 Democrats, 202 Republicans, the 20 and one vacant seat. The leadership of the House is vested in a very fragile coalition of the 202 Republicans and the 20. In order to get a Law passed you must have both houses of Congress to agree. That takes negotiation and I do not believe that all of the 20 will agree to negotiation because they do not want to raise the debt ceiling period - that's MHO. Even if you can get the House Republicans and Democrats to vote for a proposal any one of the 20 can stop action in the House by calling for a vote on the ousting the Speaker. We are doomed IMHO by this power given to the 20 because Congress will be unable to act due to a small minority (4.6% of the House) that have given us very little reason to trust that they have the best interest of the nation as a whole as a part of their agenda - again MHO. Over 95% of the Nation, Republicans and Democrats alike, have no voice because of 4.6%. If it were not for the 20 I would say we have a very good and divided Congress. Both Republicans and Democrats would have seats at the table to negotiate balanced legislation or none at all - IMHO not a bad thing. A balanced and divided Congress has always seemed to work best for me; however, what we have now is not a workable situation IMHO. I see default as imminent with a 90%-95% probability of occurrence. I concur with your thoughts and concerns Capital, but the BIG question is how to “protect” against the “nuclear option” of one (or all 20?) of the “crazies” trying to precipitate a crisis by kicking the speaker out, refusing to raise the debt limit, etc., etc. Unfortunately, these “people” are NOT economic “Nobel Prize winners” and have very little knowledge of how markets work, the economy works, “ripple effects” of a default, etc. Some of them don’t even look smart enough to come in out of the rain!!! They may dig their heels in over some strange issue and refuse to raise the debt limit. As several have said, money markets at some of the huge firms (Schwab, Vanguard, Fidelity, etc.) are about as safe as you can get, and US Treasuries are considered the “default” safest option, but if these people initiate some nuclear “mutually assured destruction” option, I’m not sure there is anything you can do to “hide” from the damage. Maybe a big position in gold/PM, huge market short positions, maybe something else. These are not necessarily “safe options” in normal market conditions, and I would be very hesitant to bet in a HUGE way on anything. But I just see no way one can really totally “protect” a portfolio in situations like this. It’s sort of like a wholesale “nuclear exchange”, I’m not sure “anything is safe”. Win |
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Post by Capital on Jan 8, 2023 17:10:49 GMT
win1177 , unfortunately I do not see any way out of the present disfunction. Actually as I see it we could be in the same situation if the Democrats were in the same slim majority. IMHO the cause of this is our election system for the House. The single member district system required by the Constitution seems to be the problem. In all states both Democratic and Republican districts are drawn with no other purpose than to enclose just enough of the other party's voters to create a safe district. What you get are totally unequal prorations within a state's House Members. I will cite my state, Tennessee, as a case in point. In the last two Presidential elections 70% of the voters voted Republican. The state has 9 members of the House of which 8 are Republican or 89% of the seats. We have a grossly under represented minority. Thirty percent of the population is represented by 11% of the House members from the state. The same happens in states with Democratic majorities. In addition this cramming of voters in disproportionate districts allows for the more extreme outlying factions of society both right and left being elected. I'm not sure how this occurs; however, we know it is happening because it exists currently. Whether this is a temporary element in our current societal swing to the right or permanent change in the electoral system I do not know. I was alive in our last societal swing to the left in the 1960s; however, I was a pre-teen and have no memory of the societal political situation of that time. There are other voting systems used by other democracies that provide a more fair and representative method or electing legislatures; however, that would take a Constitutional amendment which is unlikely. That said I hope this mess to be temporary in nature because I don't see a possibility in changing the current election system; and, the thought of an eternity of this election mess does give me a good feeling about our future as a nation.
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Post by win1177 on Jan 8, 2023 17:20:09 GMT
I agree Capital! The question is how to “fix” this? Gerrymandering has been an issue for many decades, and neither side seems to want to “fix it”. The raise holy He!! Whenever the other side does it, but as soon as they come into power, they do it to elect as many of their party members as possible. Goes on in South Carolina just like Tennessee.
Win
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